‘Another day, another brand’ could well be the catchphrase of our sector, but as with everything in this industry we call home-from-home, it’s never as simple as that. The past couple of decades have seen a rapid evolution away from the owner/operator model, which has kept the sector ticking along for thousands of years, and we’d all be forgiven for feeling dizzy from the shift.
The large brand stables have quickly jettisoned their hotel ownership and, with it, many of the responsibilities. After the big shareholder payday, which resulted from selling off their assets, the majority are focused on a fee-based model, which, for the small companies in particular, can present valuation challenges on the open markets.
The model is far from even around the world, with territories showing a wide variety. For example, here in the Asia Pacific, Marriott International sees much higher incentive fees (the number of hotels earning incentive fees in the region is in the mid-80s, percentage-wise, against 62% in Q2 for the whole estate, in part because of the concentration and success of the luxury segment).
While the analysts catch up, they are hoping to reassure their shareholders with growth and plenty of it. Net Unit Growth is quickly becoming the KPI of choice, and all efforts are being made to keep it at a healthy level. NUG varies. In 2022, Marriott’s was 3.2% against Hilton’s 4.5%.
This year has seen a rebound, but issues remain. On the group’s Q2 earnings call, Marriott president & CEO Tony Capuano told analysts that
the biggest thing we’re hoping for now is continued relief from the constriction we see in the debt markets in the US and Europe for new construction. If you can’t build a hotel, you can’t add it to the portfolio.
Enter the soft brand. These started to flourish during the era of the battles with the OTAs, which also brought us the growth of the loyalty programmes, which combined to try and build scale to lure guests away from the likes of Expedia. The hotel chains cannot hope to compete on size – even in the face of Airbnb – but they hoped that rewards and personalisation might help to convince guests, particularly business guests, that it was worth staying in the brand family.
Soft brands were essential to this. Pulling existing hotels into the network with minimal changes required to the property, they can gain access to distribution while the brand owner adds to the pipeline, with often the lightest touch of franchise agreements. It looks like a win-win, and the global operators have piled them on.
Most recently, this meant another flag from Accor, the Handwritten Collection, adding to MGallery Hotel Collection and Emblems Collection in the soft, or collection, brands segment. Where the other two brands were targeting the upper upscale and luxury markets, this latest flag was swivelled towards the midscale, with aspirations of more than 250 hotels by 2030.
Alex Schellenberger, CMO, premium, midscale, economy brands, Accor, said that the group was looking to
support the growing number of independent and boutique hotel owners looking to boost their global profile, connect with more audiences and grow their revenue without losing their identity.
So, no expensive, onerous brand standards, you just plug and play. But light touch does not mean light expectations. For a hotel with an existing personality, bringing in a brand and paying those fees does not come lightly. Unlike some hotels entering the system, it was not built with a brand in mind, but its own identity.
A franchise can feel remote, but demands to prove that it is delivering will be front of mind for the latest addition to the portfolio. It would be easy for a hotel to believe it was treated as just another number in the pipeline and at risk of being overlooked.
As asset managers, we work for the hotel, which means seeking the best possible results for that hotel. This means ensuring that the brand does not see the hotel as just another number and building a strong relationship with the brand owner.
It also means continuing to work with the hotel owner on the whole property across operations. A brand should not be seen as a quick fix, it is one sliver of the hotel. We will be active across the hotel, looking to tighten operations, to invest, to know when to expand.
Adding a soft brand can be a strategic boost, but it shouldn’t be your only strategy.